Things you need to know.
– PPI collapses – and stocks surge!
– Fed is now almost guaranteed to stop the hikes AFTER the May meeting…
– UNH beats, Will BLK, JPM, PNC & WFC do the same?
– BA has more problems…. supply issues and incorrectly installed parts in the 737 MAX – stock down 5%
– Try the Lemon Chicken
So, PPI caught everyone by surprise! And I mean everyone…the report was so good, it’s hard to believe it’s true! I mean top line PPI FELL by 0.5% m/m vs. rising by the 0.1% that was expected and the y/y figure? Well that was stunning as well….rising by only 2.7% vs. the revised 4.9% rate only one month ago……and when you remove food and energy – the m/m figure declined by 0.1% and the y/y figure was up 3.4%….well below last month’s read of 4.8%….Stunning, no? Leaving many to ask – Can these numbers actually be REAL? In addition, we had Initial Jobless Claims of 239k, up from last month’s 228k, while Continuing Claims remained steady at 1.81 million. So, basically what we saw were two things…Inflation is in fact responding to the rate hikes and the job market is holding steady – even in the face of the hikes…and that would lead some to hammer home the ‘We did it, soft landing story’….
Stocks welcomed the news when it came out at 8:30 – futures were up, stocks surged on the opening bell and then continued to move up as the sun moved across the sky….by the end of the day – the Dow had gained 384 pts or 1.15%, the S&P up 55 pts or 1.3%, the Nasdaq shot higher – rising by 236 pts or 2%, the Russell tacked on 23 pts or 1.3% while the Transports gave back 34 pts or 0.2%….
The excitement yesterday was all about how many market participants say that the FED will NOT raise rates next month by the 25 bps hike that we all expected…that the PPI report will give them cover to do NOTHING….leaving rates at the 4.75% – 5% range….To this I say – not happening….I am not convinced that the FED will pause now….they need to get the terminal rate to 5% – 5.25% and then pause….and then sit back and let the data continue to confirm that they succeeded in taming inflation…..but remember – and I said this on Making Money with Lauren Simonetti yesterday…..
– the recent spike in energy/oil prices was NOT reflected in either of these reports….the CPI and the PPI….the 15% surge higher last week after the Saudi’s and OPEC+ announced that they were cutting production to help manage supply – when all they wanted to do was raise the price of oil….has not hit either of those data points….that will happen now and be reported next month during the second week of May….after the FOMC meeting….. So, get ready for what might be a mild tick higher as a result…. again – I am not lighting the place on fire; I’m just saying that be aware….
So, I am the camp that they will raise rates one more time and then pause…and IF they went too far – and caused the pendulum to swing too far to the right – then they will in fact CUT rates at some point…but later this year? No way….But there are some that are betting the ranch on rate cuts in the fall – I think that is a mistake…..I think a pause is the best we can hope for at this point…..and the truth is – we should hope for that – because if the FED cuts rates in the fall, that must mean we’re in BIGGGGG trouble…. Again, something I don’t see that happening with the unemployment rate still hovering at historic lows….We would need to see the unemployment surge higher – to better than a 5% handle (currently it is 3.5%) or we will need to see the complete collapse of the CRE (Commercial Real Estate Market) before we see a pivot by the FED….
Now that collapse of the CRE? Yes, that is going to be a problem…..but I also assume that all of the Ivy educated members of the FED and the administration know this…..and in the past month or so, we are hearing plenty of rumblings about it….about how it is beginning to crack, about how owners will be unable to refinance these properties at today’s rates when many of these properties remain ‘under-utilized’. In NYC alone – the vacancy rate for CRE is pushing 40% (although Mayor Adams will tell you that it’s 10% – why? Because he doesn’t want to tell you the truth) – he’s too busy telling everyone that NYC is back! That it is stronger than ever – blah, blah, blah (go to midtown – West or East between say 35th and 56th and tell me what you see, count the number of vacant store fronts never mind the empty office buildings) …..San Fran is approaching 30% and in the Windy City (Chicago) it is pushing 28%….all numbers that I think are ‘under reported’ – I think the vacancy rates are higher but the ‘official numbers’ do not support my thesis….much like transitory didn’t support what we all saw.….and while that might cause the FED to reconsider where rates should be down the line – I don’t think that’s happening in the fall….The CRE crisis is slated to hit next year…..
10 of the 11 sectors were higher…. Consumer Discretionary and Communications were both up better than 2%, Tech, Healthcare, Basic Materials all up better than 1.5%, Financials, Industrials, Staples, and Energy up under 1% while Real Estate gave back 0.3%. The Growth trade – SPYG +1.6% while the Value trade – SPYV gained 1%. Airlines, Homebuilders, Aerospace and Defense, Metals and Miners, Semi’s, AI, Cybersecurity, Biotechnology all higher by day’s end….
And the beauty pageant begins in 2 hours…..JPM, WFC, BLK, C, PGR and UNH all on the docket….Remember both JPM and UNH are DOW members – so their results will have an outsized impact on how the Dow reacts…..so if they report good numbers – watch the Dow surge higher again…..
UNH smashes it! $6.26/sh (vs. the expected $6.06) …. up 16% y/y… Revenues of $92 billion – ahead of estimates….and they are raising their outlook for the year… Again – UNH is one of those mega cap names that I keep talking about ($490 billion market cap) in the healthcare industry and is a core holding for many portfolio’s….
Bank earnings are expected to go up on an annualized basis – JPM estimates expect annual earnings to be up 30%, C +16%, WFC +28%, GS +20%, MS +13%…. Things to pay attention to? The influx of deposits post the SVB crisis, Investment banking revenues, lending standards and what I think is more important…..LOAN LOSS RESERVES (LLR)….the big boys expected to set aside billions more – this on top of their already increased provisions last quarter…..to put it in perspective…JPM (one of my favorites) posted a $2.3 billion loan loss reserve last qtr.…..a 49% increase – capisce? Today, they are expected to announce another $2.27 billion in LLR’s…. So, what does this tell you about what Jamie expects? What will his forward guidance look like and then – how will investors react?
Now look – JPM has been trading in a tight range…. $125/$128….and $125 is a key level…it is the 200 dma…. a failure to hold (think earnings miss) could send JPM down $10 bucks or about 8% over a couple of sessions….…. while good news (earnings beat) could see trader types take it up to $135…. or a 5% advance… All very exciting….so get ready…Yesterday it added 0.5% to end the day at $129….and this morning it is quoted up again…..and remember – JPM (like all the big money center banks) is down on the year….so any good news will cause buyers to trip over each other trying to get in……(which is why I never got out!). In the end – listen to the ‘guidance’, listen to the tone of his voice, is he confident? Listen to what he thinks is happening in the CRE space and listen to what he says about the ‘landing’.
Just fyi – BAC is the biggest loser in the group – down 13% ytd with a 3% yield…. (Wink wink).
Oil – is higher again this morning…. up 20 cts. at $82.40 – after giving up about 1% yesterday…. for no other reason than traders ringing the bell and taking profits after the spike higher we’ve seen in the past month…. Oil is up 30% off the March lows….so are you going create drama about a 1% pullback? I didn’t think so…We remain in the $80/$90 trading range….and summer is coming…. (Think driving demand).
The dollar index made a new low for the year this morning…. trading at 100.788…. and remember – a weaker dollar will help support commodities.
Gold …. which is up 12% off the March low……is under a bit of pressure this morning – down $3 at $2,050……again – it’s traders taking profits after the move up….and I would not panic about any significant pullback….
Nothing new to say about bonds… the 2 yr. yielding 3.98%, the 10 yr. yielding 3.40% while the shorter duration 3-month bill ended the day yielding MORE than when it started at 5.05%….and the 6 month down 1 bps at 4.98%….
This morning US futures are down – makes perfect sense after the rally….….BA (a Dow component) taking the blame for the weakness right now….as they warned of slowing 737 Max production due to a parts supply issue, there is also something about how some parts were incorrectly installed in these planes, but no need to worry, the FAA says that THAT is nothing to worry about! (Oh boy! Just wait until the next disaster). And when BA slows down delivery of planes, they slow down their cash flow…..the stock is down $10 pts….or 5% expect to hear from CEO Davey Calhoun………and that is causing Dow futures to be down 77 pts, S&P’s down 6, Nasdaq down 45 and the Russell off 2.
Eco data today includes -Retail Sales expected to be -0.4%, Ex autos and gas of -0.6%. Industrial Prod of +0.2%, Capacity Utilization of 79.1%. U of Mich Sentiment of 62.1…. but the focus is clearly on EARNINGS.
European markets are open and are higher……up about 0.5% across the board….
The S&P closed at 4146 – up 55 pts…. What’s next? Will bank earnings allow investors to challenge the February highs of 4195? We are about to find out…BLK just reported and guess what? Fink crushed it too…. why is anyone surprised…. he is like Jamie Dimon…. hardly ever misses…
We are at a crossroads…. Stick to the plan….
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors.”
Lemon Chicken
As summer is only around the corner…we need to start thinking about party dishes….and this is a great dish if you are planning a party….it is easy to prepare and goes along way. You can make it ahead of time and just heat it up in the oven when ready. Served with another entree in a buffet style along with a large mixed green salad, Rice Pilaf and some sautéed broccolini – it makes a great presentation.
You will need to start with boneless/skinless breasts, and thighs. rinse, drain and pat dry….
To prepare – you need: – 4 lemons – sliced into 1/8-inch slices…. seasoned flour (s&p), beef broth, butter and a bit of olive oil.
Cut the chicken breasts/thighs into bite size pieces – dredge in seasoned flour and set aside. Next – in a large sauté pan – melt the butter and a bit of olive oil to prevent the butter from burning – make sure it is hot before adding chicken. Add enough to fill the pan – but do not overcrowd. Keep the heat on med high/high. brown the chicken all over….it will take on a golden hue…. should be about 5 mins or so……
Next add enough beef broth to bathe the chicken pieces – lay lemon slices on top of chicken and cover. Turn heat to med and allow the lemon and broth to permeate the chicken. About 3 / 5 mins more. Keep your eye on it and turn the chicken so that it does not burn. The broth will begin to thicken so make sure to not overcook. Transfer to a baking dish and repeat the process for the balance of the chicken. You can cover and keep warm in the oven until complete.
Buon Appetito
